Conducting Fit & Proper Person Tests

Posted by

Vivek Dodd

on 26 Oct 2023

Autumn is often when preparations begin for annual reassessments of fitness and propriety for Senior Managers (SMFs) and Certified Persons.

Fit & Proper tests

But what does 'Fit and Proper' really mean? What expectations exist when assessing a person's fitness and propriety to perform their role?

Let's be clear; it's not a tick box exercise where the FCA's 'Long Form A' questions are answered, and the job is done! The FCA clearly states this should not be a 'rubber stamp exercise' where 'nothing new' is identified.

Importantly, it requires firms to engage with what fitness and propriety (F&P) means and how practically they will assess it, knowing it is highly likely that the FCA may scrutinise the decision made. Particularly if there are instances where things have gone wrong in a firm.

Annual reassessments are a good time to sit down and formally review the evidence. But be wary – the FCA do not see F&P as simply an annual event to be performed as quickly as possible.

So, what does the FCA expect of you?

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Fit & Proper testing expectations

The FCA published 'positive' and 'negative' indicators relating to how it expects firms to assess the fitness and propriety of their Senior Managers and Certified Persons.

You can read the full list in our F&P Assessment Tips desk aid. But here, we focus on a few key relevant points for the annual assessment.

F&P annual assessment

As with all the FCA guidance, each firm must consider the indicators in a proportionate way and look to the intention behind them.

These points all illustrate that the FCA expects firms to have a detailed and thorough F&P process, which dovetails with the wider Performance Management process.

The managers performing these checks must be trained to do so, with oversight from the Senior Management Team and a robust escalation process to consider the cases that are not clear-cut.

The FCA expects that some people will not meet the requirements expected of them, and so appropriate remedial actions will need to be taken to ensure that those individuals remain fit and proper to conduct their role(s).

So, what should you be considering?

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The three pillars of the Fit & Proper test

The annual reassessment provides a good opportunity to check that your ongoing monitoring is effective.

Three key areas need to be considered:

  1. Honesty, Integrity and Reputation
  2. Financial Soundness
  3. Competence and Capability

A. Honesty, integrity & reputation

In practice, any issues relating to honesty and integrity are likely to have been identified and addressed as part of the ongoing monitoring of fitness and propriety and Conduct Rules, including, where required, disciplinary proceedings.

At the annual reaffirmation, it would be odd for a firm to begin to set out new information relating to instances that have arisen during the year that have not been investigated and an outcome reached.

The regulator is crystal clear that F&P should be continuous, and where there are grounds to withdraw approval, this should happen.

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B. Financial soundness

Financial soundness is demonstrated by an individual who behaves in a financially responsible way and whose financial circumstances do not create a risk of compromising his or her professional and/or ethical conduct.

Most firms will ask the SMF holder or Certified Person to self-attest their compliance at the annual reassessment. The question for the firm is how it might wish to validate this information.

Some conduct an annual blanket screening, whilst others will screen less frequently but apply a risk-based formula to screen a sample each time.

Like in many situations, the onus is on an individual to speak up and share issues that may impact their F&P status.

Free F&P Assessments Desk Aid

C. Competence & capability

The focus of annual F&P assessments is most likely to revolve around an employee's 'Competence and capability'.

That requires you to consider the practical realities of the individual's role and whether they can perform it to the standard needed.

There are two elements to this – the individual's competence to perform the role and their capability to do so. To determine this, the FCA recommend considering all relevant matters, including:

  • if the person satisfies the relevant FCA training and competence requirements relating to the controlled function the person performs or is intended to perform
  • if the person demonstrates by experience and training that they are suitable, or will be suitable, to perform the controlled function
  • if the person has adequate time to perform the controlled function and meet their responsibilities associated with that function

Remember, this is also an opportunity for a Senior Manager or Certified Person to call out if they do not think they have been provided with the tools and resources to perform their role! A firm must take very seriously senior individuals, citing they are unable to perform their accountabilities due to a failure of their firm to support them properly.

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Hybrid working environments

Post-pandemic, the new normal involves working in a hybrid environment. In other words, a combination of remote and in-office work.

When considering an individual’s competence and capability to perform their role, it is important to factor this into the equation.

For example:

  • How have they managed their role and their people during this time?
  • Have they got the right technology support to allow successful remote working?
  • How are they managing and supporting their people?
  • What measures have they put in place during the pandemic to ensure the wellbeing of their people?
  • How are they monitoring their peoples’ performance remotely?
  • How are they coping with the lack of visibility of their team?
  • How are they overseeing their delegated activities?
  • What steps are they taking to ensure appropriate oversight and governance continues?
  • How have they adapted their working practices to ensure that all their responsibilities continue to be met?
  • How have they revisited customer requirements during this period, particularly vulnerable customers, to ensure that they continue to meet them?
  • What MI and data are they using to help them determine that their regulatory and business accountabilities are being performed as they should be?

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Effective management of Fit & Proper tests

Many firms use an automated solution to help monitor and record evidence of the fitness and propriety of your Senior Managers and Certified Persons.

As with anything automated, it is important to ensure that you use it wisely and don't overly rely on it as ‘the solution’ for assessing F&P.

These systems are great for providing you with a home for supporting evidence, prompting assessments when they are due and ensuring core questions are answered.

But they won't provide the human factor of considering the evidence to identify what it tells you about that individual's fitness and propriety.

Fit & Proper Assessments E-learning Course

Next steps

Our free F&P Training Presentation provides practical examples to help you challenge your thinking and ensure that you are truly considering someone's competence and capability in the context of today and the regulator's expectations.

F&P assessment is fundamentally about equipping leaders to perform their role effectively and, importantly, are doing so in practice! After all, these are the people who set the tone and culture for the firm.

"Culture is defined by the worst behaviour you tolerate"
John Amaechi

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